People are generally living longer, healthier lives than in the past, which means if you retire at age 65, you may spend more than 25 years in retirement. That’s a long time to live on a “basic” retirement income, so now, more than ever before, it's vital that you start saving for your retirement as soon as you can. By starting to save today, you’ll be better prepared to grow your future income and enjoy more security during all those years after you stop working.
Your retirement income needs will depend on what your expenses are likely to be, but it is generally accepted that you will need between 70% and 85% of your pre-retirement income to live comfortably in retirement.
When thinking about how much income you will need when you retire, here are a few important details to bear in mind:
How much you have saved so far.
How you have invested your savings.
When you’d like to retire.
Other income you expect to receive in retirement.
How will your medical expenses be paid.
How long you think you’ll live; and
Your spouse or partner’s situation – does he or she have a source of retirement income?
Normal Age of Pension Entitlement
As of January 1, 2017 the “Normal Age of Pension Entitlement” increased from 60 to 65 - however any person born in 1969 or earlier may choose to maintain their “Normal Age of Pension Entitlement” at age 60. Once you reach the age of 60/65 (age 50/55 in the case of early retirement) there are certain options you are eligible for in respect of your account, beginning the first day of the month following your retirement date for early retirement or the first day of the month following your 65th (or 60th for members born in 1969 or earlier) birthdate.
The purpose of The National Pensions Act is to provide and mandate a means for members to contribute to their retirement savings during their working careers. On retirement, these savings are used to provide an income stream to allow members to support themselves once they are no longer working. In other words, a member contributes to their pension plan each month so they can receive a regular income payment after they retire.
The Chamber Pension Plan is a Defined Contribution Plan. In short, this means that an account is opened for each member and the amount of money they receive after retirement is based on the amount of money contributed to their individual account while they were working, including both the employer and employee portions, plus or minus the net return that has been earned on those funds during the life of the member's account.
Unless a member's retirement savings are less than CI$5,000, a lump-sum cash payout of retirement savings is NOT an option. The retirement savings must be used to provide an income stream.
Joint and survivor
The National Pensions Act dictates that all pensions must be “joint and survivor” with a member's spouse if the member is legally married on the date of their retirement or death. If this scenario is relevant to you, please contact us for additional details.
Options on Retirement
When a member reaches retirement eligibility age there are three options, outlined below, which allow them to begin drawing their pension as income. If you are approaching retirement age and would like to discuss these options in more detail please contact our team.
1. LUMP SUM
This option is ONLY available if the total value of a member's retirement savings is less than CI$5,000. In this case, the Trustees of the pension plan may allow the member's pension to be paid in one lump-sum. Please see Withdrawal Options for additional information.
2. Retirement Savings Arrangement
A Retirement Savings Arrangement (RSA) is simply the member’s same account they had at retirement date, but which has now been approved by the Director of Labour and Pensions to begin making retirement payments.
As a general rule of thumb, the RSA is the best alternative if a member's retirement savings are less than CI$200,000. Unlike a life annuity, an RSA will not necessarily provide a lifetime pension as it is structured to pay out a member's pension by a set amount per year until the account is depleted. An RSA is more cost-efficient than a life annuity since there is no element of profit to a life insurance company built in.
The Director of Labour and Pensions must approve all RSAs to ensure they comply with The National Pensions Act.
3. Life annuity
On retirement, a member's retirement savings can be transferred to a life annuity. Life annuities are typically offered by life insurance companies. The member's retirement savings are invested by the life insurance company and used to provide a regular income stream to the member for the remainder of their life (and their spouse's life if the member is married at the date of retirement). The amount of income paid will depend on the size of a member's retirement savings. The larger the retirement savings, the larger the retirement income.
The Director of Labour and Pensions must approve all life annuities to ensure they comply with The National Pensions Act. If you are considering a Life Annuity, please contact us for the detailed list of criteria set out in The National Pensions Act.